HAIN - NASDAQ

Greetings, and welcome to Hain Celestial First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasures to introduce your host, Chris Mandeville, Managing Director of Investor Relations at ICR. Thank you, Chris. You may begin.

Good morning, and thank you for joining us on Hain Celestial’s first quarter fiscal year 2023 earnings conference call. On the call today are Mark Schiller, President and Chief Executive Officer; and Chris Bellairs, Executive Vice President and Chief Financial Officer. During the course of this call, management may make forward-looking statements within the meaning of the federal securities laws. These include expectations and assumptions regarding the company’s future operations and financial performance. These statements are based on management’s current expectations and involve risks and uncertainties that could differ materially from actual events and those described in these forward-looking statements. Please refer to Hain Celestial’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and other reports filed from time to time with the Securities and Exchange Commission, as well as its press release issued this morning for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. The company has also prepared a presentation, inclusive of additional supplemental financial information, which is posted on Hain Celestial’s website under the Investor Relations heading. Please note, management’s remarks today will focus on non-GAAP or adjusted financial measures. Reconciliations of GAAP results to non-GAAP financial measures are available in the earnings release and the slide presentation accompanying this call. This call is being webcast and an archive of it will be made available on the website. And now, I’d like to turn the call over to Mark Schiller.

Good morning, and thank you, Chris. On today's call, I'll give you an overview of our Q1 performance and outlook for the balance of the year. We're pleased to report that we exceeded our constant currency margin and EBITDA guidance in Q1 and showed material sequential improvement. As a result, we are reaffirming our annual profit guidance with the continued caveats that we expect Europe to be unusually volatile and that our anticipated total fiscal year profit growth is skewed to the back half. Let me now dig into the Q1 results in more detail. On our last earnings call in August, we laid out our annual plan expectations. You'll recall that our guidance for the year was in constant currency, given the expected volatility in foreign exchange rates. While we didn't give specific guidance on revenue in Q1, our total sales growth in constant currency was in line with the Q4 sales growth as expected. On adjusted gross margin and adjusted EBITDA, we guided that Q1 would be modestly below Q4. That said, our adjusted gross margin, which is normally the lowest in the first quarter due to seasonality, came in much better than we guided, up considerably from Q4. Our adjusted EBITDA dollars and margin also improved versus Q4, which is better than we guided. To understand our progress better, let me now pivot to the operating units. In North America, net sales were up 8.6% versus a year ago. While this is less growth than we achieved in Q4, much of the softening was expected. First, as expected, we pulled back on promotional spending on brands that were experiencing supply disruption. As a result, on the growth brands, our non-promoted consumption was up an impressive 17%. That's six points higher than our total consumption revenue growth for these priority brands. As expected on the last earnings call, most of the supply disruptions are now behind us. Second, as expected, after a huge surge in baby formula demand in the second half last year due to well-publicized industry-wide shortages, we had less supply in Q1. Third, we had some significant club programs on Personal Care and ParmCrisps in Q4 and lost those rotations for fiscal 2023. While this was not anticipated, much hard work is being done to get those back in second half later this year. Digging in a little deeper on the revenue side. Our growth brands in North America continued to gain share in both units and dollars. We gained aggregate market share again on our growth brands for the eighth quarter in a row and 23rd time in the last 24 months. Velocities were up a solid 11% versus a year ago. But in snacks, Sensible Portions consumption continued to grow double-digits, as it has for the last three years, despite some supply disruptions in the quarter. On Terra, where we've had extended supply disruptions, which are now substantially resolved, net sales grew 27% in the quarter, the highest quarterly growth on the brand in almost four years. In addition, household penetration on Terra was up more than 60% in the quarter versus a year ago. In the middle of the P&L, North America adjusted gross margin grew modestly versus year ago after being down considerably last quarter, and was also up 270 basis points sequentially versus what we delivered in Q4. Our margins were higher for three primary reasons. First, we have greatly improved the performance of our internal supply chain. Our factories are running better with greater throughput, less waste and fewer changeovers. In addition, we continue to add more productivity as resources are freed up from fighting supply issues. Second, we've done a good job addressing long-standing supply issues on our largest brand, as evidenced by the strong consumption and shipment data. While some supply disruptions are expected to continue on several of our Pantry brands and baby formula, most of our big issues have now been resolved. As a result, the cost of these disruptions is expected to drop significantly. Third, we also took more pricing in North America in Q1, thereby strengthening the overall margins. Thus far, elasticities remain relatively low and in line with our planned assumptions. With regard to profits in North America, the improvement in gross margin has flowed through to the bottom line. Adjusted EBITDA dollars and margin were up in Q1 versus Q4. Total EBITDA dollars were also up 28% versus Q1 last year, restoring the growth after multiple quarters of decline. In summary, we have continued optimism in North America. Our growth brands have performed well, and our overall profit performance has improved considerably. We expect continued momentum skewed to the second half of the year. Shifting now to international. We also made some sequential improvement. However, given the volatile European environment, the financial progress was modest and as expected, foreign exchange has had a material impact on our reported results. In constant currency, our year-over-year sales trend in Q1 improved 280 basis points versus the Q4 year-over-year trend. As previously mentioned, our plant-based businesses continue to struggle along with the categories, offsetting the progress on the rest of the international business. Our adjusted gross margin percentage improved versus Q4, which is noteworthy given that Q1 is historically our lowest margin quarter. Year-over-year adjusted EBITDA growth has also improved modestly compared to Q4 growth rate. In the UK with very high inflation in political turmoil, consumer confidence is at multiyear low. As a result, consumers are trading down to private label and shifting shopping patterns from traditional grocery toward discounters. You'll recall that the entire UK grocery store sales declined in Q3 and flattened in Q4. In Q1, total UK store sales continued to rebound as expected. Our business there also modestly improved sequentially on a constant currency basis from a net sales decline in Q4 to 3.5% growth in Q1. We continue to grow share and deliver solid growth on several of our largest brands, baby, jelly and soup categories. While sales trends for the industry and our UK business are benefiting from continued price increases, like the rest of the industry, our units are declining. This has created significant plant deleverage, which our team has aggressively addressed by stripping out costs. Combination of additional pricing mid-quarter and these aggressive cost controls have led to 140 basis point improvement in adjusted gross margin versus Q4. In Continental Europe, where our business is almost entirely plant-based beverages, our overall P&L performance was very similar to what we delivered in Q4. While we continue to make progress in replacing the volume from the large co-manufacturing contract we lost in Q3, as consumers shift to private label, declines from our higher-margin brands and branded customers is offsetting those gains. As with the UK, we've been aggressively taking out costs by reducing labor, streamlining our org structure and adding productivity. While Chris will give you more details in a moment, let me turn to our go-forward outlook. As discussed many times, we live in a volatile world, and there are many sources of potential upside and downside based on things outside of our control. The challenges include currency fluctuations, consumer behavior, recessions, inflation, the Russia-Ukraine war, just to name a few. As a result, we expect continued volatility as we move through the year, especially in Europe. That said, we're doing a good job controlling the controllables and now have more visibility than we did just a few months ago and are optimistic that we'll begin to see some normalizing. In Q2, we expect modest sequential improvement in total company profit performance. As pricing hits the market, costs stabilize somewhat, we continue to drive efficiency and productivity. That said, we do expect some softening in the North America top line in Q2 driven by three things. First, we expect continued shortages on baby formula with less inventory to sell in Q2 than we've had in previous quarters. Second, we were not successful in renewing the club and hair care program from last year, and we'll start overlapping those shipments in Q2. And third, we expect the softening of the tea category due to warmer weather and overlapping the Omicron COVID surge from last year. We're working with our retail partners on how to best improve the shelf set and merchandise the category to optimize the upcoming season. As we stated, when we released annual guidance, we do expect continued improvement and a return to profitable growth in the second half of the year, driven by several factors. First, we expect the strengthening of the overall sales globally. In North America, we have good momentum on our growth brands. In the UK, we expect the entire store and our brands to continue to improve as we lap COVID and realize the recently taken price. In Continental Europe, we anticipate restoring growth on our nondairy beverage business, as we win more private label and co-manufacturing contracts. Second, we have more pricing coming. We will start to realize the full impact of our Q1 US and UK price increases in this quarter. And in Canada, we successfully negotiated new pricing, which begins now, with the full quarter benefit realized in the second half. In Continental Europe, despite high inflation, we have not been able to take pricing on negotiated annual contracts since last January. We're optimistic that we will get some inflation priced into the new nondairy beverage contracts starting in Q3. Third, productivity ramps up as the year progresses, and we expect more than half of our $40 million to $50 million of productivity savings in the second half. Fourth, the input costs are starting to crest. And while we expect second half inflation to still be up double digits, it should be lower than what we experienced in the first half. We have planned for some pricing release in the second half and have covered about 75% of our tradable ingredients at prices in line with our plan assumptions. On energy, Continental Europe has announced their intention to subsidize the cost, just as the UK has done. You'll recall that we currently have no coverage in the second half of the year in Continental Europe. The government subsidies will give us some welcome relief. Fifth, we expect less supply disruptions as global demand eases. In addition, we now have secondary suppliers for most of our co-manufacturers and multiple suppliers for most major ingredients. And lastly, given the softer performance in the back half last year that withheld shipments in the UK during pricing negotiations and the $10 million write-off in Q4, we have easier overlaps. In summary, our business is improving and there are signs that the macro environment is beginning to stabilize. We continue to believe that our brands and our strategy and our team are doing well. As a result, we expect continued progress, especially in the back half of the year. Let me now turn things over to Chris to provide more color on our financial performance and outlook.

Thanks, Mark, and good morning, everyone. As Mark discussed, our first quarter results were better than the guidance we provided in August, with sequential improvements in gross margin and bottom line growth versus the fourth quarter of fiscal 2022; improved performance in North America, driven by continued strength of our growth brands, solid performance in our supply chain and productivity initiatives; and the volatility in results from our international business, including a large swing due to strengthening of the US dollar versus the pound and the euro. In the first quarter, consolidated net sales decreased 3.4% to $439.4 million. Consistent with recent trends, foreign exchange remained a material headwind in the quarter. On a constant currency basis, consolidated net sales decreased less than 1%. The strong dollar resulted in a $27 million net sales headwind in Q1. Reported and adjusted net sales growth in North America were 9% and 3%, respectively. In our International Operating segment, constant currency adjusted net sales growth improved sequentially versus the fourth quarter. In Q1, international reported net sales decreased 20%, but the decline on a constant currency basis was only 7%, an improvement of approximately 280 basis points versus Q4. Adjusted gross margin was 21.5% in the first quarter, decreasing approximately 240 basis points versus the prior year period. However, sequentially versus the fourth quarter of fiscal 2022, adjusted gross margin increased approximately 210 basis points due to the impact of pricing catching up to inflation and strong operations performance, offset somewhat by seasonal mix. This is better performance than our Q1 guidance of a modest decrease in gross margin versus the fourth quarter. Total SG&A, including marketing, came in at 16.8% of net sales for the quarter. Adjusted EBITDA on a constant currency basis was $38.6 million versus $47.3 million in the prior year. Including the impact of foreign exchange, adjusted EBITDA was $36 million. Raw material and finished good inflation and foreign exchange were the primary drivers of lower year-over-year adjusted EBITDA. First quarter adjusted EPS was $0.10 versus $0.25 in the prior year period. Now turning to our individual reporting segment. In North America, reported net sales increased 9% to $288.4 million. Adjusted for foreign exchange movements, acquisitions and divestitures, net sales increased more than 3% versus the prior year period. Adjusted gross margin in North America during the first quarter was 22.7%, which is a 270 basis point improvement versus Q4 and a 40 basis point improvement versus the prior year. Notably, as our pricing is now catching up with inflation and with ongoing improvement in supply chain performance, this is the first year-over-year increase in gross margin, since the third quarter of fiscal 2021 and speaks to the sequential momentum we are seeing in North America. Q1 adjusted EBITDA at constant currency in North America was $30.9 million, a $6.8 million or 28% increase versus the prior year. Adjusted EBITDA margin was 10.7%, which is 160 basis points higher than prior year. In our International business, Q1 adjusted net sales declined 7% on a constant currency basis from the first quarter of fiscal year 2022, and foreign exchange reduced net sales by an additional 14 percentage points to reported 21% decline versus 2022. In the UK, constant currency adjusted net sales increased 3.5% versus prior year, which continued the sequential improvement that we saw in the back half of fiscal '22. In Continental Europe, constant currency adjusted net sales declined 27% in Q1 compared to the prior year period, driven by the softness in the plant-based nondairy beverage category and the lost co-manufacturing contract that we have discussed previously. With an aggressive push on operations productivity, International gross margin in the first quarter at 19.1% was 80 basis points higher than Q4. However, with continued high raw material inflation, increased energy costs and fixed cost deleverage, Q1 gross margins fell approximately 700 basis points versus prior year. Adjusted EBITDA at constant currency in Q1 was $17.5 million, a 46% decrease from the prior year period. As a percent of net sales, adjusted EBITDA was 9.9%, 720 basis points below prior year. Shifting to cash flow and the balance sheet. First quarter operating cash flow was negative $5.1 million versus $37.6 million a year ago. Lower operating cash flow resulted from a reduction in net income, and use of cash for working capital as inflation has continued to increase the value invested in inventory and receivables versus year ago. We made $7.2 million in CapEx investments in the quarter, approximately $11 million less than during Q1 of 2022, as we are continuing to experience long lead times for certain assets, while we prioritize growth and productivity projects. Finally, we closed the quarter with cash on hand of $52 million, net debt stood at $847 million and net leverage of 4.1 times as calculated under our amended credit agreement. Now, turning to our outlook for the remainder of fiscal '23. As Mark said earlier, we are reaffirming our full year guidance of minus 1% to plus 4% adjusted net sales and adjusted EBITDA growth at constant currency, with growth skewed towards the second half of the year. Assuming dollar exchange rate against the pound and euro of $1.13 and $0.98, respectively. For the full year, we now expect currency exchange to result in a headwind of approximately $110 million and $14 million for adjusted net sales and adjusted EBITDA, respectively. In the second quarter and in the second half, we expect that, as we have discussed for the first quarter, sequential improvement across the income statement and balance sheet will continue, due to top line and margin momentum in North America, 2023 price increases offsetting mid-teens inflation, continued improvement in our supply chain, fewer disruptions and robust productivity and an uncertain, but improving retail environment in the UK and new nondairy beverage contracts in Europe. In the second quarter, we expect consolidated adjusted net sales growth at constant currency will be similar to Q1. The overlap becomes more moderate to expect accelerating constant currency adjusted net sales growth and the backpack. The foreign exchange headwind will also moderate in H2, as we begin to overlap the strengthening of the US dollar that began earlier this calendar year. Constant currency adjusted net sales in North America in the second quarter is expected to be approximately flat versus prior year. Due to a loss of the fiscal year 2022 Q3 Club Hair Care program that began shipping in Q2 last year, the ongoing well-publicized shortage of baby formula and unseasonably warm weather and an overlap of the year-ago COVID Omnicom surge creating a headwind for our tea and soup brands. We anticipate that international constant currency adjusted net sales growth will improve sequentially over the next three quarters as we replace the lost non-dairy co-manufacturer contract in Continental Europe and we see continued improvement in total UK store sales. With the pricing that we took in Q1 in both the US and the UK fully in effect in Q2, adjusted gross margin is expected to be flat to up modestly versus the first quarter. We expect further sequential improvement in H2 as we benefit from pricing in the European non-dairy beverage segment and a robust productivity agenda where the benefits are more heavily weighted towards the back half of this year. Next, we should end fiscal year 2023 having recovered a significant percentage of the inflation-driven gross margin decline that we experienced in fiscal year 2022. Below gross profit, we anticipate that Q2 marketing and SG&A as a percent of net sales will be consistent with the first quarter, and that rate should improve in H2 as we benefit from top line growth and fixed cost leverage. The full impact of pricing in North America and the UK, improving international top line momentum, robust productivity and seasonality will contribute to continued sequential improvement in adjusted EBITDA at constant currency in the second quarter and the back half. While still below fiscal 2022 levels, Q2 constant currency adjusted EBITDA is expected to increase versus the first quarter, and adjusted EBITDA margin in the second quarter should improve modestly compared to Q1. In H2, as we overlap the onset of the war in the Ukraine, the loss of the non-dairy co-manufacturing contract in Europe, numerous ongoing supply disruption, the 40-year high inflation and the onetime write-off in Q4 last year, we anticipate a return to constant currency adjusted EBITDA year-over-year growth in Q3 and in Q4. As I noted on our last call in August, the environment in Europe and the UK remains volatile and therefore, difficult to forecast. The ongoing effects of the war in Ukraine continued to ripple through the global supply chain, with many ingredient costs still up 50% or more versus a year ago. In the midst of a cost of living crisis and with three prime ministers in less than two months, UK consumer confidence in September was at the lowest level since the measure began in 1974. And last week, both the ECB and the Bank of England announced a 75 basis point rate increase. In the UK, it was the largest hike in 33 years. Against this backdrop, our International team continues to respond rapidly to changing customer and consumer priorities. As we continue to focus on improving our cash conversion cycle and be selective in the timing of certain CapEx projects, we expect full year free cash flow to be in line with the prior year. With leverage now slightly above our stated target three to four times range, you can expect for the next several quarters to see a supply of free cash flow primarily toward debt reduction. In summary, the momentum that the business gained in Q1 was material and consistent with our expectations. We continue to control the controllables and expect that results throughout the balance of the year will continue to improve. I will now turn the call back to Mark.

Thank you, Chris. I'd like to close by thanking our entire global team for their resilience, flexibility and tenacity during these turbulent times. I appreciate their hard work and collaboration and look forward to continued progress together. Let me now turn it back to the operator, so we can answer your questions.

Thank you. We will be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question is from Brian Holland with Cowen. Please proceed with your question.

Yes, thanks, good morning. I wanted to ask about the Europe nondairy beverage business. You mentioned new contracts there. How has the progress of recouping the customer volume loss last year versus expectations? Just given the category softness that you've referenced, do you still think you'd get back as much of that that you anticipated at the time you lost it?

Yes. So the first thing I would say is, we recouped about 70% of the lost volume from that contract or have commitments for 70%, hasn't all started shipping yet. But we're making good progress in bringing on new customers to replace that volume. On the flip side, however, as the economy gets weaker and we see people migrating to private label or the branded part of the category is softer than it was months ago. And so, most of the contracts that we have added are branded players that we're co-manufacturing for and so their volumes have come down a little bit versus what we had anticipated. So while we're gaining volume by bringing on more customers, the size of that volume and the size of the orders from existing customers has abated a bit kind of offsetting one another. With regard to future contracts, which is the process we're in now for private label annual contracts that become effective in the third quarter, we're in the midst of the bidding process now. And I would say, in an environment where there is more capacity than demand, those contracts are going to be very competitive. And we're going to certainly try and get inflation built into those contracts, but how much we'll be able to get into and how many of them win, time will tell. We'll have a much better idea on the next conference call.

Appreciate the color, Mark. And then, you've talked about last couple of quarters now about just -- and you just referenced here some of the softness in plant-based demand and the impact on the business. So I'm wondering more broadly, just given some of your peers that are more heavily weighted towards indulgent snacking and have called out strong demand, you play obviously in the better-for-you space. So, if we strip aside plant-based, what's the interplay between Indulgent and better-for-you? Are you seeing any impact here of consumers being less focused on the type of products that you sell and maybe pivoting more towards indulgence just given macro sensitivities, anxiety, et cetera.

And then in North America, with the pricing that you've taken and are in the process of taking, have you found that generally, the competitive environment around price points and such are pretty consistent with what you're doing such that you don't anticipate necessarily gaps opening up in a way that is -- that it could be problematic? Thank you.

Yes. So we have taken more pricing in the US that hit in Q1. The Canadian pricing is hitting as we speak. And it was high single-digit pricing. So it's significant additional pricing in the algorithm. We watch very closely, Andrew, what our price gaps are versus our competitors, our thresholds, whether velocities and elasticities are changing. And so there's a lot of adjustment going on, customer by customer, brand by brand, if we haven't taken enough or if we've taken too much because we do want to stay at a certain kind of gap to our competitive set. I don't anticipate any major changes versus the pricing that we've taken. We've not seen significant changes in the trajectory of our business. Again, there may be a segment here or a segment there or a customer here or there that we have to make some adjustments. But I expect relatively minor tweaks.

Thank you.

Thank you. Our next question is coming from Alexia Howard with Bernstein. Please proceed with your question.

Good morning, everyone.

Good morning.

Can you talk a little bit more about exactly sort of when the pricing is expected to come through? I know you had some this quarter, but you're expecting to have some. Is it both Europe and the US that's planning to have more as we roll through the year, or is the Q1 pretty much it?

And the other one I had, back then, you were pretty clear about your M&A priorities, maybe becoming more of a fast-growing pure-play food company. A lot of that was the plant-based direction you were trying to go. I wonder, how much you just mentioned about the nondairy beverages plant-based. And of course, there's also been a tougher environment with higher interest rates that might make M&A harder. How are you really shifting your view there about M&A and your ability to affect the shift in your portfolio? And I'll pass it on.

Well, so we are always looking at M&A, both on the buying side and the selling side. It is more challenging in this environment with high interest rates for people to get financing. There is interest in some of our non-priority assets, but getting those deals done has been challenging. And obviously, given our current leverage, we're less likely to be doing any buying right now, until we do some selling. And there is still a tail here that we've talked about in Hain 3.0 that we would like to, over time, exit. So, all I would tell you is those conversations continue. Our desire to continue to simplify the portfolio and reshape it is still there, but the marketplace is going to somewhat dictate what we can and can't do in this environment.

Thanks.

Thank you. Our next question is from Michael Lavery with Piper Sandler. Please proceed with your question.

Good morning. Thank you.

Good morning.

I just wanted to come back to plant-based. You called out you broke down the European -- the growth in International and show that down 9%. Is that -- how much of that was driven by the lost contracts? And I guess, as you look ahead, you talked about the competitive pricing for trying to fill that capacity and renew some existing contracts. You just touched on rightsizing infrastructure as well. How much is potentially rationalizing some of that capacity on the table, or is the expectation that there's enough demand? How does that sort of shake out?

Yes, it is.

Just going to take that.

Great. I’ll pass it on. Thank you.

Thanks, Ken.

Thank you. Our next question is from Rob Dickerson with Jefferies. Please proceed with your question.

Great. Thank, so much. Just to kind of follow-up on the gross margin piece. I thought I heard you say in the prepared comments, you may be able to recover a fair balance of the kind of profitability margin loss, how you get through the year, just driven by potentially some supply chain improvements and also the incremental pricing coming. So, what I just wanted to make sure, I heard that correctly. Is that for total company? And then if we think about kind of how you exit the year in '23, like how much should we be expecting some of that gross margin to recover as we go sequentially Q2 to Q4? Thanks.

Yes. The thought there was that the exit rate, that by the time -- so sorry. To begin again. It's a consolidated, the total Hain. And as we exit the year, the Q4 run rate for total Hain, we believe will be begin to look a lot like what it did a year ago [indiscernible].

Okay. Got it. And then just another clarification question. On FX, I thought you said, maybe for the full year, the drag could be like $14 million to $110 million, and that was for sales and EBITDA. So just curious, I might have missed it, have you said kind of what that drag was in Q1? And how we should be thinking about the trajectory in absolute terms as we get through the year? That’s it. Thanks.

Yes. So in my prepared remarks, we said $110 million net sales for full year headwind and $14 million of EBITDA full year headwind. In Q1, the net sales have been above $27 million, and the EBITDA had been raised 2.5 or 2.6 [ph], I think. So the trajectory kind of stays the same in total dollars, even though there's puts and takes within that. So we expect in the back half of the year will overlap the beginning of the strengthening of the dollar from last year. So the rate effect goes down a little bit. But as net sales grows, then that's an offset. And so, the quarter-by-quarter impact ends up looking pretty similar throughout the year, even though there's some changes with the details.

Got it. Super. That’s all I have. Thank you, so uch.

Thank you. Our next question is from John Baumgartner with Mizuho Securities. Please proceed with your question.

Good morning. Thanks for the question.

Good morning.

Good morning.

I wanted to ask about fun crisps. The Q1 sales contribution was much lighter sequentially. And I think you mentioned some distribution losses. Can you quantify the impact from those losses? How you're thinking about regaining those? And then I guess, aside from distribution, how is the underlying volume holding up, given what it looks like to be -- you raised prices are not double digits. Just the lay-land on farm, Chris, would be appreciated. Thank you.

No, no. So this is really about maximizing your overhead absorption in your factory. So, 92%, I think, of our UK sales are self-manufactured, which is very different than North America, where it's a little more than 50%. And so we've got lots of plants with lots of overhead. And a long time ago, a decision was made to use that stranded overhead to get into private label and partner with retailers. And so, it really is us expanding our distribution in categories that we're already in. There is no kind of unique private label manufacturing of categories that we don't have brand.

Okay. And I just wanted to also revisit or follow-on on the plant-based business in the International segment. And I guess, I want to also kind of unpack it. Obviously, beverages have a specific event that happened. But I also want to add about entrees, the Linda McCartney brand, food ingredients. I mean, from time to time, natural and organic product category is just kind of slow because they do. It seemed to happen here in the US. Is there something structurally happening in these categories in your guys' view in Europe, or is -- or do you just think it's more of an event-driven and macro driven in terms of the demand side?

Yes. So when the pandemic hit and animal protein was difficult to get because of lots of issues within the manufacturing facilities and COVID outbreaks and the like, a lot of people tried plant-based proteins for the first time. And some stayed and some left. And so part of this is just overlapping a COVID surge, and that's why the category is soft. The other dynamic in the UK is the growth migrated from frozen to chill. We are the number two player in frozen. We're a very small player in chilled. So that's impacted our short-term results a bit. But actually, in the most recent quarter, we've seen chilled start to flow and frozen start to pick back up. Again, I think, because of spoilage and shorter shelf life, consumers who are interested in plant-based are more likely to fill their freezer and know that they're not going to have to throw something out because it expires, which is the risk with short shelf life products. So, it's a dynamic category. The softness globally is well documented. We like our positioning. We feel like we have a great brand with a lot of potential, but it's -- again, there's kind of the ebbs and flows of COVID and some of the shifts between segments that has driven some short-term volatility.

Okay. Thank you.

Thank you. Our next question comes from Anthony Vendetti with Maxim. Please proceed with your question.

Thanks. Just a quick question on the e-commerce side. Is that continuing to grow significantly? Can you just talk a little bit about the quarter results on that side?

Thank you. There are no further questions at this time. I'd like to turn the floor back over to Mark Schiller for any closing comments.

Thank you, everyone. We appreciate your interest and your time today. We're around for the rest of the day and look forward to additional conversations. Thank you so much.